Chinese Government Casts Uncertainty on Luxury Blockchain Development

    As China pushes to regain control of the technology, companies are forced to question what this will mean for the development of Blockchain within luxury industries.
    Jing Daily
    Tamsin SmithAuthor
      Published   in Technology

    This week the Chinese government announced a new platform designed to offer regular detailed assessments of how national companies are using Blockchain. From its inception, China has been notably suspicious of emerging crypto technologies. The announcement, made at a Beijing conference by the Ministry of Industry and Information Technology, marks a decisive juncture in the country's Blockchain development. As China pushes to regain control of the technology, companies are forced to question what this will mean for the development of Blockchain within luxury industries.

    This latest move comes after a widely circulated letter supporting the international #MeToo movement disappeared from China’s internet last month, causing activists to turn to Blockchain. By sending a 0 dollar transaction through Blockchain’s ethereum platform, campaigners were able to attach the letter - detailing the cover-up of an alleged sexual assault at Peking University - into the metadata of the transaction. In this way, the letter is now stamped on the cryptoweb for good, and could be a defining moment in the evasion of China’s Great Internet Firewall.

    Despite original trepidation, China is the number one filer of Blockchain patents globally, and the government is now seeing its integration as a way to drive luxury innovation. Out of the 406 patent applications in 2017, the People’s Bank of China filed 68, followed closely by tech-giant Alibaba at 43.

    CEO Jack Ma spoke at the 2nd World Intelligence Congress in Tianjin this week, "I personally am very optimistic about Blockchain and Alibaba has already spent a few years doing research in this field. I had very little understanding of what Blockchain technology was a few years back, but I thought it was important because I heard that it could potentially address the issues of data privacy and data security. Alibaba owns the largest number of Blockchain technology patents of any company in the world." he explained.

    "This technology is a must-have for our businesses, our payment platform and to our entire ecosystem which accommodates billions of transactions. But, we’ve never thought about using Blockchain technology to make money in cryptocurrency. Today Blockchain has become a buzzword. But the truth is not every company can be in the Blockchain business."

    Famously, e-commerce sites have been weighed down by a flood of luxury counterfeit goods, and have struggled to gain the trust of high-end brands. Alibaba, for its part, vows to take the issue very seriously, and have invested highly into Blockchain and the development of anti-counterfeit technologies.

    In November last year, China's second-biggest e-commerce giant, announced they are developing a traceability system based on Blockchain technology. According to The Boston Consulting Group’s Partner and Managing Director Sarah Willersdorf, Blockchain technology could be used to solve many of the issues of counterfeit products in China, eventually leading the way in eradicating fakes for good, “I think this will be one of the most important uses of Blockchain in luxury, she explained.

    The official release date for the inaugural monthly Global Public Chain Assessment Index will be announced in the coming days. According to data by Statista, the global Blockchain technology market is predicted to reach 548.2 million in 2018, and is forecast to grow to 2.3 billion by 2021.

    Earlier this year, Silicon Valley Live offered a series of lectures on the technology of blockchain, including a presentation by VeChain Founder and CEO Sunny Lu. VeChain, the blockchain-enabled platform designed to enhance product management in the supply chain, is based in Shanghai, China, and is leading the way for the use of Blockchain technology in Asia.

    The lecture included insight into the rise of Blockchain in China and its implications for the luxury industry- notably, the eradication of fakes and counterfeiting. It was live-streamed to over 40,000 Chinese community members and over 100 WeChat groups.

    VeChain’s methodology works by providing a unified ID in the world of blockchain for all of its objects, “regardless of if this object is a human, product or virtual file.” The technology generates a hash code based on the description or attributes of the object, and binds the hash code with the ID. Through the use of microchips, VeChain then embeds this code directly into the product,

    “Hence, if anyone wants to destroy the microchips, he/she must destroy the product first,” explains Lu. According to Lu, this is a way of 100 percent guaranteeing Blockchain’s anti-counterfeiting function. “Through the technology of these microchips, we are able to establish a connection via a channel that links the products in the real world with the virtual world of blockchain, creating a binding relationship.”

    Among many companies, this product tracing and tracking is regarded as one of the biggest advantages of Blockchain technology, and the Chinese government is coming around to the idea of the technology in state-controlled industries. VeChain has so far implemented this technology by partnering with the biggest wine importer in China, DIG Shanghai Waigaoqiao Direct. DIG is a state-owned distribution center that accounts for 30% of all wine imports.

    In this example, a thin electronic tag containing the unique product idea and hash code is inserted into the cork of a bottle of wine. When the wine is opened, the tag is destroyed, curbing wine counterfeiting activities by preventing the repeated use of old wine bottles.

    In other luxury industries, many companies are still struggling to figure out how the technology can be implemented seamlessly into high-end products - however, market leaders are starting to emerge. Diamond jeweler De Beers announced they're going to launch the first industry-wide Blockchain later this year, in order to track diamonds for their entire life cycle. Microchips can tell a customer where the diamond has been, where it was bought and sold, and any other information throughout the entire supply chain.

    In the fashion world, independent designers are also starting to look for ways to use Blockchain technology in the fight against fakes. Last year, a pilot initiative by London-based designer Martine Jarlgaard, saw the brand partner with Blockchain technology company Provenance, to give each garment a unique digital token, enabling the tracking and full transparency of the items.

    As companies are forced to report their Blockchain use to the government, it remains to be seen what impact this will have on Blockchain development in the luxury industry. The release of the Blockchain Index will mark an important step towards China’s goal of establishing national Blockchain standards by 2019, and will place the government firmly in control of the challenging technology. As reported by CNN, Director of the Blockchain Research Office Li Ming believes these standards can’t come soon enough. He claims they should happen “as soon as possible.”

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